Why You Should Have Non-Commissioned Sales People

Mitch Little is the Worldwide Vice President of Client Engagement at Microchip Technology. He graduated with a degree in Electrical Engineering, but he’s worked as a Mechanical Engineer for more than 50 years.

Little has been an advocate of non-commissioned sales since the late ’90s. This came about after they implemented it on their own sales team at Microchip Technology.

The Shift from Having Commissioned to Non-Commissioned Sales People

How did Microchip Technology shift from commissioned to non-commissioned salespeople? Little provided us a background by explaining the situation they faced as a company.

Microchip Technology is a manufacturer of semiconductors, serving 140 countries and 75 sales offices. They have 125,000 clients around the world, $6 billion in revenue, and $18 billion of market cap.

They’ve been in the electronics industry for a long time. More than two decades ago, Microchip Technology saw a significant shift in the semiconductor electronic space.

To illustrate this industry shift, Little gave smartphone manufacturers as an example. With these companies, the manufacturing and design can start in the United States, but end up completed somewhere else.

For instance, the original design team from California works with other design teams from Beijing and Germany. Basically, they have teams from different countries.

Nothing was ever completed where it started. They found that because of this, people don’t want to work on projects or with companies who have this structure.

It’s because there’s a chance they weren’t going to get paid for their labor. All because the products weren’t shipped to where they were originally designed.

How Salespeople Affected the Shift in the Commission Structure

This became an issue that affected the industry’s way of getting designs, making payments, doing shipments, and basically completing the manufacturing process.

Little shared that the real issue was the choice that salespeople were making. Let’s say they had two clients.

Client A will produce the revenue off-shore, while Client B will produce revenue in the same location where the salesperson is. Even though Client A would bring in larger revenue, they’d choose Client B because of where they produce revenue.

That is a bad corporate decision. It drove Microchip Technology to think of a solution to change that practice.

That’s why they shifted completely away from the standard 60-40 split. They moved away from having traditional, commissioned salespeople to having completely non-commissioned ones.

Implementing the Non-Commissioned Sales Approach

Changing compensation to improve sales

Each of Microchip Technology’s sales teams has 10% of variable compensation. They based this on corporate goals, not individual accomplishments and team goals.

Little admitted they also had fears before changing their sales commission structure. They thought about what would happen when they tell everyone that the 60-40 split wasn’t going to become a 100% salary.

They also thought about what this change will mean for their people. Yet despite the fears they had, they believed that having non-commissioned salespeople would be for the best, so they implemented it.

Looking back, Little said the numbers will tell anyone the results were “staggeringly perfect.” Even the data agrees that this was the best decision for the company.

Little shared that one of their first concerns was that all the highly-paid salespeople won’t hang around. Yet they discovered that implementing this compensation structure won’t lead to companies paying more.

Rather, companies will end up averaging what their salespeople made over the last few years. They won’t increase their cost of sales at all, plus the people like it, so they stay.

Little revealed they didn’t lose anyone during that entire transition phase. He knows the value of keeping people in the sales industry, as the average turnover rate in a B2B sales environment is 35%.

Little also shared that Microchip Technology’s turnover rate around the world with 1,500 salespeople is 3%. They’re deviating from the norm, yet they’re keeping their people and seeing incredible results.

Industries Where Removing Sales Commission Can Be Effective

Microchip Technology experienced working with the two sides of commission, yet they only saw a real positive difference when they shifted to having non-commissioned salespeople.

You might be wondering, though, are there situations where commissioned sales would work better for a certain industry? Is having a non-commissioned sales team optimal for select companies only?

Little said that for the Fuller Bryce salesman, it would be best to have direct-commission salespersons. Yet beyond that, every sales company is “pretty much the same.”

Little also shared examples of other strong companies who adapted the non-commissioned sales practice, such as:

Boeing

Disney

Lexus

Ameritrade

They’ve been practicing the same sales representative commission structure for years now. Some of them have even said that the commission brings distrust between the seller and the buyer.

To eliminate that hindrance, they removed individually-based commissions from their structure.

Little made a bold statement by saying that “there is no real reason for having quotas.” Most companies have problems when it comes to meeting them.

He said that it’s because they’re measuring something that isn’t of value. Yet he acknowledges that the fear of shifting from that long-standing practice is huge, and it’s a tough move to make.

The Sales People Myths We Believe

What really makes commission systems not work? What are some of the things that turned out to be myths about salespeople?

Little said the fundamental issue is that most sales leadership teams today believe that salespeople are all coin-operated. The truth is, they are not.

Management teams believe that greed the only thing that motivates a salesperson — and that is not true.

Author Daniel H. Pink teaches us that what motivates a salesperson is the same as everyone else: autonomy, mastery, and purpose.

Little confirmed that he also found this to be true, even long before he read Pink’s books on sales. Most salespeople really like helping people. That’s their true motivation.

Our history in sales will say we’ve always paid commissions, but Little found that they’ve “always been wrong.” Yet most people won’t get over their fear of making a change.

One of their fears is to lose all of their salespeople. Though it’s unfounded, Little understands that fear.

Because how you do things also matter, aside from what you’re going to do.

Why Sales Leaders Need to Let Go of Having a Commission-Based Sales Team

Little said that the concept of commission actually ends up being a manipulation tool, and everyone knows it.

It manipulates salespeople to achieving the objective the management wants them to. They’re paid more for Product A than Product B in the hopes of them selling more of Product A.

Management teams are setting salespeople up for some game rather than leading and coaching them. It happens because it’s a lot more difficult to lead and coach than manipulate compensation.

It takes more commitment to lead, coach, and mentor rather than letting money twist people’s activities. Sadly, this is where most sales leaders won’t commit.

As Little said, committing to truly lead, coach, and participate with your team is a must for sales leaders. When you remove the monetary compensation, salespeople need something to work with.

They need active leadership. Yet, that is what most sales leaders are afraid of — actually working with their teams and leading them.

Little shared that when you shift away from having commissioned salespeople, you’re going to have 40% more time to be an active leader.

Each year, commission plans change in ways that are very individualistic and wrong. Why? It’s because companies are manipulating people using numbers rather than leading.

The Effects of Sales Without Commission on Your Business

After implementing the non-commissioned salespeople policy, Microchip Technology’s clients noticed a significant change. They enthused that they experienced a “different kind of conversation” with Microchip salespeople.

Now, the conversation revolves around the clients. The sales reps listen, and they’re willing to have an engagement about what the clients want.

When you can convey the value of having a non-commissioned sales team to your clients, you can bring in real value to them. You can tell them you’re there purely for the purpose of helping them achieve what they want.

It’s having the mindset of, “If you don’t buy anything from me, I’m alright with that. I would prefer another outcome, but I’m still okay with that.”

Your salespeople will show up with the purpose of helping clients solve their business issues. They can freely work even with off-shore clients because they’re not paid commission.

The clients also recognize that once you tell them the story. The engagement becomes all about the client and not about what the salesperson is selling.

It becomes about what the salesperson can do to help the client, and not about the things that they want the client to buy. They begin to have a radically different conversation.

Advice on How to Start Building Your Own Non-Commissioned Sales Team

He also recommended To Sell Is Human, which talks about the true motivation of salespeople.

If you want to reach out to Mitch Little personally to talk about this topic, you can send him an email at mitch.little@microchip.com.

Choosing to have non-commissioned salespeople may be a tough choice to make, but it is possible. Mitch Little showed us that even if you move away from traditional sales compensation, you can still make it work.

What’s important is to carefully plan out your business decisions and to have foresight on how to deal with the changes.

What are your thoughts on having a commissioned versus non-commissioned sales team? Let us know your thoughts in the comments section below.